How to get the best out of a non-executive director
By Steve Beaumont
There are all sorts of reasons for appointing non-executive directors. You may be lacking certain skills in the boardroom; need a sounding board; or require someone with experience of markets you want to expand into. Whatever the initial motivation, you will want to make sure that you get the best out of the appointment.
So what considerations and actions are required to ensure that both you and your NED achieve your goals?
Define your needs
Clearly defined terms of reference are vital. Lay out your expectations up front so that both you and your appointee are clear on your respective roles and responsibilities. Failure to do so will leave you disappointed and potentially out of pocket. A good non-executive director will always ask you to clearly define your needs and expectations.
Your chosen NED is there to provide a specific service, add much-needed objective thinking…or, hopefully, both. But it should also be a requirement of a non-executive post that the appointee performs a role outside of the boardroom, at the very least as an ambassador for your business. Again, I recommend that you define your expectations in this regard as well.
Governance
The Combined Code on Corporate Governance (June 2008) states that it is part of a non-executive director’s role to constructively challenge and help develop proposals on strategy. It adds that a non-executive director should ‘scrutinise the performance of management in meeting agreed goals and objectives and monitoring the reporting of performance’. It also suggests that a non-executive director ‘should be involved in the appointment and where necessary the removal of executive directors’. Clearly, therefore, the code is emphasising objectivity.
The very term ‘non-executive’ indicates a role not hindered by day-to-day issues and therefore objective. If you’re running a company it’s very useful to have someone with whom you can discuss problems and potential solutions objectively. You may have a good management team, but will they remain objective and dispassionate if the problem or solution affects them?
Experience
It’s often said that you can’t buy experience. But in the case of NEDs, you can. You should be looking to hire someone with an extensive track record of senior management with large blue-chip corporations or of running multiple SMEs. Some will be specialists in a specific field. Either way, you will want someone who will add considerable value and more than you repay their fees.
The skill chest
One of the most valid reasons for appointing a non-executive director is to add skills that are missing from your organisation. Negotiation or financial skills, legal knowledge, an understanding of business development, sales or marketing expertise – appointing a non-executive director can be a very cost-effective way to secure these additional benefits for your organisation. Specific industry or technical knowledge may be important in some cases, but I would argue that it is far more important to have someone who can ‘see the wood for the trees’, is objective in their thinking, and brings expertise in a variety of disciplines. Specific industry nuances can be learned.
Network
Business executives who have built a strong network of contacts usually guard them assiduously. One way around this, if you know someone who has contacts that would be useful to you, is to appoint them as a non-executive director. Better that they use their contacts to benefit your business rather than that of a competitor. However, a word of caution – just because you appoint one new member to your board does not mean you want to be spending huge sums of money on ‘extra’ third-party services. Again, communicate your expectations.
Strategic Planning
The strategic business plan is the route map which guides an organisation to meet its objectives. It provides a vital framework within which you and your team can operate. It should be a living document, clear to everyone in your business, albeit adapted for different audiences. Yet I’m constantly surprised by the number of businesses I come across that don’t have any sort of strategic plan or, if they do, have one that is at least five years old and is gathering dust in the MD’s office.
Any plan, whether long or short term, needs constant reviewing and updating to recognise achievements, changes in economic conditions or any unforeseen opportunities / circumstances. The NED can and should play an important part in helping to prepare such a plan and monitor its progress against established goals. Objective thinking and experience all come to bear in this regard. Checking consistency of implementation is also critical
Mentoring
Leading a business can be lonely. Occasionally we all need a sounding board or a confidante able to reassure us that we are heading in the right direction. Here again, the clarity of thought that comes from objectivity is crucial. One of my clients told me about a conversation he had with a friend who had asked about my role in the company. He told him: “Oh Steve, he’s my analyst, helping to keep me sane!” This can be a very valuable investment if used properly.
Conclusions
On a final note, I would urge that executive search and the HR professionals think more about the skill chest rather than trying to pigeon hole candidates on the basis of an exact industry profile. Did Adam Crozier get appointed as the new ITV CEO for his broadcast expertise? Hardly. It is far more likely that his past record of success, his experience and skill-set were the deciding factors.
Whatever your reason for considering hiring a non-executive director, above all I advise you to choose someone you can work with. Chemistry is vital and should not be underestimated. Industry knowledge can be learned; an ability to work with all stakeholders cannot!